The mistake that Netflix made was trying to effect this transition while raising prices. Instead, they should have created the qwikster service but kept the prices constant. I would have phased the marketing in gradually instead of a big roll out. Then after a reasonable period of time (and after increasing the quality of the streaming product), they should have started to inch rates up. That would help them increase revenue without pissing off and confusing the consumers. With both services under the Netflix brand, Netflix has to ensure over the next 10 years that the Netflix brand transitions to the streaming service cleanly. I'm not sure that this is a trivial task.
It was never called "DVDs-through-the-mail-that-you-pick-over-the-Netflix", it was always called "Netflix." I think their idea was always VOD, with DVDs a necessary evil to get marketshare. I also think that Netflix knew that streaming would be a bigger portion of the pie sooner than the distributors or studios did, and got good pricing because of it. However, streaming is here and everybody knows it and Netflix is getting squeezed. This is documented; I can dig it out if need be. Netflix is perfectly willing to burn all the "DVD only" customers they have - after all, that market belongs to Redbox (which gave enormous concessions to the studios to get it) and 80% of Netflix's revenue is back-catalogue (which is much cheaper to get VOD licensing for). Their general approach was to prune off their deadwood (Qwickster was a dead man walking) and focus on the deals that would increase their wealth and marketshare - and nobody is going to care about physical media in 3 years anyway. However, that 1 DVD was a security blanket for everybody who had found something that wasn't streaming and wanted it anyway - so things didn't go as planned: - Reed Hastings and crew thought that they'd be able to transition everyone to streaming without any real worry, because people with the 1 DVD plan rarely use it - Reed Hastings' customers were pissed off that they were suddenly being charged six bucks for their security blanket, which made them question their relationship with Netflix and QQ in a rage Netflix doesn't understand that "rental" also implies "ownership" and having a physical token, even if it is a Season 1 Breaking Bad disc that's been sitting on your DVD player for six weeks, really f'ing matters. And maybe it won't in 2014, but we aren't there yet. And since Netflix doesn't understand where their trouble comes from, they aren't able to resolve their issues in a non-clumsy fashion.
The streaming is close - it's incredibly convient, it's great when the movies are in store, but the quality is still questionable due to issues around silverlight and the general questionable nature of the US internet infrastructure - mostly a last mile issue I suppose. I had to stop by a client's house two weeks ago - I usually don't make house calls and tend to focus on corporate gigs, but she - a lawyer in her mid 40s - pays the bills - to help her with setting up her Netflix streaming on her internet enabled TV. She's able to use and can afford the internet enabled TV, but I doubt that she was savy enough to use a computer hooked to a TV. I suspect when more televisions come internet enabled, then we will truly see the demand for streaming services take off. I'd be curious to see what Netflix's marketing researched showed - assuming that they did any - around perceptions of their brand and the challenges and ease of use of around streaming service. I'm also curious if they have any marketing consultants involved and what their guidance was.
I really don't think the decision to ditch DVDs was about consumers at all. I think it was all about getting into position to battle over streaming rights. Hell, even the Academy has started streaming their screeners...
Other than that, I was always disappointed that their entire catalog wasn't available for streaming. Has this changed?
-At least they aren't charging $60.00 a movie??! http://hubski.com/pub?id=6190